The Dominoes Are Falling: A Sharp Market Correction May Be Ahead.
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International Markets - Technical Analysis
Among U.S. indices, the S&P 500 and the Nasdaq have not yet broken below key support levels. In contrast, the Russell 2000 has shown signs of a structural shift in recent days. This week, the market is bracing for a Fed rate hike, which could serve as a catalyst to trigger a significant move. It’s worth paying close attention to key support levels, as a break below them could open up new shorting opportunities. Sell signals already appeared last week in the index representing the German market and in the Stoxx 600. The index tracking emerging markets made another attempt to break through the 68.75 level, but faced a decisive rejection there and ultimately turned downward with a significant gap. These market conditions are not favorable for buying, so it’s best to hold off on purchasing stocks for now.
A new world may be dawning for Brazil
Elections are coming up in Brazil in October: of the two candidates who appear to be the frontrunners, current President Lula’s lead over his main challenger, Flávio Bolsonaro, appeared to be waning according to opinion polls. The race is not yet decided, and the stakes are high, as the next president will face, among other tasks, the challenge of allaying market participants’ concerns about Brazil’s growing national debt. Based on initial market reactions, investors are responding positively to Flávio Bolsonaro’s narrowing of the gap with Lula in the polls; or, to put it another way, market participants appear to be placing their trust in a stricter fiscal policy and spending cuts than before, as well as in the possibility of lower interest rates resulting from this and less government intervention. There is still roughly one month left until the Brazilian elections, and the next president will set the course for both Brazil and the local stock market in the coming period.
The major U.S. equity indices have remained in a corrective and consolidation phase for several weeks, while small-cap stocks are increasingly displaying signs of a developing downtrend. With this week's Federal Reserve interest rate decision approaching, it is hardly surprising that uncertainty surrounding the future path of monetary policy has weighed modestly on investor sentiment and equity markets in recent weeks. Should the key support levels now come under pressure and ultimately fail, the markets could be vulnerable to a more pronounced corrective move. Investors are expected to gain greater clarity following Wednesday's Fed announcement, which may provide fresh guidance for market direction in the months ahead. At present, however, high-quality bullish setups remain scarce, with only a limited number of stocks exhibiting the technical characteristics typically associated with sustainable upside potential.
Best rated US stocks based on momentum ranking
Compelling technical picture:
Although the momentum-based screening process continues to identify a number of stocks, their overall technical picture does not provide sufficiently convincing buy signals. Therefore, we are not issuing a new stock recommendation this week.
List of stocks with a chance of a turnaround in the coming weeks
Most popular US stocks
The momentum model supports the creation of a technical based stock list that helps to find shorter-term trading opportunities. The model can be used to identify stocks that show reversal signals following more sustained falls/underperformance. We examine one-year, six-month, three-month, one-month and five-day momentum values, which are used to rank the stocks under consideration. The higher a stock is ranked in the order, the better it technically performs relative to the others. The change in the ranking over time is used to determine the life cycle of the stock.
- In the first table, we collect the stocks that show the most attractive picture compared to the others in a given week based on momentum factors, of which those are also presented in a separate chart where a favourable situation can be identified based on additional technical analysis tools.
- In the second table, we list the stocks that are already worthy of being placed in watchlist status. They are not among the best performers, but they have the potential to improve and signal a turnaround in a few days or weeks.
- In the third table, we have also collected the more popular stocks to help identify their position in the momentum order.
The report shows the results of a technical - quantitative based stock screening, which does not examine the fundamental background/value of the companies. For this reason, risk management/position sizing rules should be designed accordingly.
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